MA Theses 2009

This thesis investigates the existence of calendar effects on the bond market of selected emerging countries and conducts comparative analysis of these effects on the stock and bond markets. The empirical analysis for the bond markets show clear signs of Tuesday effect for most countries. This fact was confirmed by regression on dummies and bootstrap analysis. At the same time, stock market shows no evidence for any day-of-the-week-effect as a result of application of mentioned methods. Day-of-the-month effect, on the other hand, was found significant for both stock and bond markets: returns for the end of the month are higher than for the rest of the month. As it was expected the size of this effect was bigger for the stock market as equity is associated with higher risk.

This study investigates the effects of foreign ownership on performance of Ukrainian manufacturing companies in 2002 – 2006. It addresses two important issues, namely the distinguishing between different types of foreign owners and reverse causality between ownership and performance. The empirical results confirm the hypothesis that in studying the ownership-performance relationship a closer look at foreign offshore and foreign non-offshore owners is crucial. The positive effect of investment coming from the group of developed countries, USA and Cyprus is found, while capital from transition economies is negatively related to profitability. These results are discussed in the context of on-going debates on international tax cooperation standards and informational transparency of ownership structures. Besides ownership variables, two firmspecific characteristics, leverage and firm size, are important determinants of profitability. The results of the study suggest in favor of taking into account the international standards when policy concerning offshore and “pseudo-offshore” structures is adopted.

Employing the simple augmented Solow growth model (following Mankiw, Romer, and Weil, 1992), we adopt the spatial framework to analyze regional growth process among the EU regions. By incorporating structural funds into the augmented Solow growth model, we particularly focus on the impact of funds on regional growth. We nd virtually zero eect of funds in this process|the result several previous studies have also achieved. The novelty of this work is another aspect: since (an almost obvious) core-periphery pattern prevails across the Union, we hypothesize that structural funds might have systematically dierent eects for each type of the regions. In particular, we put forward the hypothesis that direct benets of peripheries (or the mainly supported regions by the EU through funds) might be too small comparing to the spillover benets they get from the neighboring cores\’ growth. Then we test the model with the means of spatial econometric tools, and nd strong results in favor of the proposed hypotheses.

The study investigates the implications of credible monetary policy during disinflation period in Kazakhstan and Moldova. For this purpose a small forward looking macroeconomic model is constructed, where inflation expectations explicitly include credibility index. By setting different levels of credibility we estimated the period when macroeconomic variables converge to their long run values. We found that under low credible monetary policy inflation met its target in a two-fold longer period. However if Central Banks would gain half of public’s trust the paths of output gap as well as inflation were approaching ones under full credibility.

The study investigates whether bank runs were determined by change in bank fundamentals or they were panic based. The answer goes through the analyzing monthly strictly balanced panel data which represents micro and macro variables referred to the banks’ balance sheets and general economic situation in Ukraine. Model is estimated using Arellano-Bond GMM dynamic panel method. We have found that bank fundamentals and macro factors show statistically significant coefficients with signs predicted by economic theory in explaining bank runs.

The Ukrainian stock exchange is evaluated for efficiency based on its reaction to secondary dissemination of analytical forecasts. A significant reaction to buy and hold recommendations is observed, suggesting the market to be inefficient in the sense of the semi-strong and strong formulations of the EMH. Furthermore, the study also points towards the lack of robustness in conventional abnormal return measures and the possibility of a reputational effect, which may offer a reason for why inefficiencies tend to arise.

This paper examines the returns of Ukrainian stocks following American Depositary Receipt (ADR) listings and finds an insignificant positive abnormal local market return on the ADR listing day. The average abnormal returns and cumulative average abnormal returns are calculated for 51 day period around the listing date. The nine out of fourteen firms in the sample have variance ratios less than one but statistically insignificant implying the decrease in the return variance after the listing date. These findings differ from previous result for the ADR introduction on Russian stocks but it is consistent with several other prior findings on international cross-listing.

This paper investigates the relationship between world crude oil prices, dollar-hrivnia exchange rate and fuel prices in the Ukraine. The research is based on two times per week data for the period from January 2007 till February 2009. Error-correction and threshold autoregression models are employed to investigate asymmetric price transmission on the Ukrainian petrol market. The results of the research conducted show the presence of the short-run asymmetry in the responses of fuel prices in the Ukraine to changes in the world crude oil price but fail to prove that the adjustment towards long-run equilibrium is asymmetric neither with respect to size nor change in the market margin.

In this research we investigate interactions among group of stock markets from the Eastern Europe. We consider return and volatility spillover effect in the region. We also study how the EU membership influences impact of Russian market on others selected countries before and after joining EU. We apply wavelet analysis in research.

The issue of gender differences in the behavior during the work process becomes more and more relevant as more women enter the workforce worldwide. Special attention is paid to women in leadership positions and female risk-taking. The study investigates the effect of gender differences in risk-taking dealing with corporate investments and borrowings of the Ukrainian open joint-stock companies operating in 2002-2006. The results do not support the hypothesis that CEO’s gender negatively influences riskiness of firm’s capital proxied by debt-to-equity ratio. However, the share of female members in the executive board has a negative impact on the corporate capital structure. Return on firm’s assets, growth of firm’s assets, firm size, and liquidity are among the other significant determinants of the corporate debt-to-equity ratio.

This thesis empirically investigates how price setting strategy influences bank performance in Ukraine during March, 2006-08. Instrumental Variables technique was employed in order to explore this effect. It was found that relationship between performance of the bank and its price setting policy is positive and statistically significant. According to these findings, banks with higher margins were more profitable. Also it was estimated that more profitable banks were characterized by strong capitalization level and high deposit-to-asset ratio. Such external factors as market concentration and inflation rate appeared to be insignificant in determination of bank performance in Ukraine.

This paper intends to assess the respond of self-reported health to different measures of social capital in Ukraine. For empirical analyses European Social Survey conducted in Ukraine in 2004/2005 and 2006/2007 is used. There are considered four indicators of social capital – religious organizations, trust in other people, level of reciprocity and trust in politicians. Each of social capital variables is measured on both, individual and community level. Since the impact of community social capital might be different for different population groups, there are investigated the relationships between health and social capital for poor people and people with higher education. Finally, because of gender differences in health function, the results are presented for males and females separately. Our results show that none of the community social capital variables is significantly related to health of men and women. However, each but level of reciprocity individual social capital measure is significantly and positively related to the health of both, men and women. Individual level of reciprocity has positive impact on the health of females. It is not found the significant relationship between health of poor people and community social capital. However, it is observed the significant impact of social capital on the health of people with higher education.

The paper investigates the impact of FDI on the survival rates of domestic enterprises. We examine this question using a Cox proportional hazard model, which is estimated using a firm-level data for the Ukrainian manufacturing industry. The obtained results show that the presence of foreign firms positively influences the survival rates of local enterprises only if their share on the market is not very high (up to 30%). And if the number of foreign firms becomes high, the crowding out effect takes place.

Aliaksei Malashonak: “Financial contagion during world crisis in 2007-2009”

The book is the first attempt to analyze the phenomenon of financial contagion during the global crisis that started in 2007. Estimation procedure is based on time-varying copula models of daily return rates of seven world stock markets during 2005-2009. Copula functions are applied to investigate the impact of the global financial crisis on the dependence measures between international markets. The relation between the effect strength and trend characteristics is also examined. The results indicate upward shift of constant correlation parameters and significant change of the coefficients describing the behaviour of dependence parameters.

Mariia Maslovych: “The bond indicator as a measure of competition in banking sector: the case of Ukraine”

In this paper we apply the Boone indicator approach in estimating the level of competition in the loan market of Ukraine. This is the first attempt to apply this indicator for estimating the level of competition in emerging countries. We found that the loan market is competitive though heterogeneous across different groups of banks and years. According to our estimations, foreign banks exhibit more competitive behavior, pushing the entire loan market into more competitive environment. We applied two approaches in estimating the Boone indicator, namely the average cost approach and the translog cost function approach. We found that the latter approach is more robust and reliable in estimating the level of competition via the Boone indicator.

This paper analyses the impact of remittances on spending patterns of households from the Republic of Moldova using a demand-modeling approach. Like other related studies the findings show that the differences in marginal spending patterns of spending between remittance-receiving and non-receiving households are fairly small. Unlike other studies the paper analyses the influence of remittances depending on their share in the budget and claims that the size and significance of the differences in spending patterns depend on this criteria. The marginal share of personal investments dominates other categories for all households of the country. Remittances do not increase the marginal propensity to invest, moreover, the higher is the dependence on the remittances, the lower is on margin the inclination to invest. The extra purchasing power coming from remittances is used for consumer durables and services, significantly contributing to the reduction of poverty in Moldova and boosting demand for local goods and services. Remittances significantly increase the marginal propensity to save which can be viewed as a capacity to invest into income-generating activities. The higher is the share of remittances in the budget the higher is the marginal share of savings.

Financial development as well as industries’ financial dependence is the important determinants of the international trade. Such kind of dependence has not been yet investigated for transition countries. This paper explores a possible link between financial development, financial dependence of industries and international trade. Using industry level dataset on firms financial dependence for 27 industries in 9 transition countries, we show that increase in financial development has higher effect on export for industries with higher level of financial dependence. A general implication of the result is that export of transition countries will benefit from reform in financial sector, but these reforms will have higher impact on the export in financially dependent industries.

The sensitivity of the equilibrium set to the information structure of the game is widely studied. Nevertheless there is a broad range of the economic models where the role of the complete information assumption was not completely understood. In this paper I investigate the role that incomplete information plays in the modeling of the particular strategic investment decisions. I consider a model of a private provision of the public goods with nonconvex technology under the assumptions of common and almost common knowledge. Applying a global game approach I demonstrate the existence of the unique Nash equilibrium, what is in contrast to the usual multiplicity of equilibria in the similar models. In the model of a sequential investments project it is demonstrated how severe agency problems may arise from the uncertainty about the agents\’ types. The optimal wage schedule used to mitigate such problems is also developed.

This research deals with Ukrainian steel market integration into the world economy. It is found that Ukrainian export price of steel closely follows world and regional steel markets which validities the law of one price for this commodity. On the other hand, no presence of bilateral long-run relationship between Ukrainian and distant markets (China and North America) is identified. This result confirms the segmented nature of world steel industry which is due to large transportation cost associated with freight of dry bulk on long distances. Further, the issues of symmetry and speed of adjustment of Ukrainian steel price to the price shocks from abroad are studied. Empirical evidence suggests that after the positive world steel price shock Ukrainian market start to adjust instantaneously, while negative shock starts to affect Ukrainian steel price in 4-5 weeks. This effect is partially attributed to the behavior of steel traders who try to maximize profits in the short run. However, the arbitrage opportunity and pressure form customers restrain price fixing for the longer than 5 weeks period. The general result is that Ukrainian steel market is close to competitive, regionally integrated and linked with the world steel market. In the short run asymmetry is very limited and the price shock translates almost to the full extend after 5 weeks. For the purpose of estimation the error correction model allowing for asymmetry is used.

The issues of corruption and shadow economy are of great interest for researchers and policy makers. This thesis aims to investigate the relationship between these two phenomena on the data from Ukraine and Russia. The data on 66 Ukrainian and Russian regions is taken and various estimation approaches are employed (2SLS, GMM and 3SLS). In order to mitigate potential endogeneity of shadow economy and corruption, a set of instrumental variables are used for each. Although previous studies suggest complementary relation for these countries, we found no evidence of such a relation.

In this thesis the treatment effect of M&A activity on a bank`s performance is studied. We have found that target banks are usually less profitable, have higher cost-income ratio and operate on a significantly higher profit margin than their peers, while acquiring banks are bigger, have larger share of deposits to total assets and maintain better asset quality. This supports the assumption of a strong selection effect taking place in the appointment of M&A treatment. Following methodology of the most recent empirical literature, a matching technique was exercised to solve selection problem. However, this research looks at a wider range of factors (both bank-specific and external) that could impact both the decision of participation in M&A and post-merger performance of a bank, and is the first to apply this technique to study M&A deals in Emerging European Economies. As a result, a negative effect of M&A on bank`s performance is concluded.

In this paper we investigate the growth-inflation interaction for CIS countries for the period of 2001-2008. We found that this relation is strictly concave with some threshold level of inflation, which is in line with the previous empirical studies based on earlier sample periods. Inflation threshold level is estimated using a non-linear least squares technique, and inference is made applying a bootstrap approach. The main findings are that when inflation level is higher than 8 % economic growth is slowed down, otherwise, it is promoted. The non-linear growth-inflation interaction is quite robust to the estimation method and specification. Our findings can be used by policy makers as a guide for inflation targeting.

The research tries to find relationship between corporate governance and three firm`s specific indicators in Ukraine. It is found that there is no influence of corporate governance on firm`s performance and firm`s value. Endogeneity issues are controlled by using sales growth of the firm as an instrument for its corporate governance, new instrument for research. Investment strategy which selects well-governed firms long and shorts badly governed firms yields negative excess returns, contrary to evidence from other transition countries. Results suggest that researchers should not consider traditional Anglo-Saxon model of corporate governance in transition countries.

The paper analyzes whether microlending expansion in Ukraine in 1997-2007 has become a determinant of the households’ well-being. The research is conducted with the information basis provided by the Ukrainian Household Budgeting Survey and the Ukrainian Microlending Program. The results reveal an evidence of positive indirect effect of microlending on households’ income at the entire distribution.

In this work the relationship between High School clubs participation and future wages has been investigated. Using the data of the United States Longitudinal Survey of Youth (1979 cohort), we did not find strong evidence of premiums neither to any out-of-school activities, nor to activities-occupational correspondence (in terms of skills developed and demanded). We also found that family background can influence occupational choice, as well as choice of child’s hobby, but this family-based selection does not have a statistically significant effect on future wages. The paper suggests that hobbies produce indirect effect on wages, rather then direct and can be considered as part of explanation of differential in earnings between occupations.

Using individual banking data for Ukraine in 3rd quarter 2002 – 4th quarter 2008 period, this research evaluates the impact of the presence of foreign banks on the total amount of credits issued by banks in Ukraine. It was found that foreign bank presence has positive effect on amount of credits issued by banks. Although the inclusion year 2008 have not change the impact of the presence of foreign banks on the total amount of credits issued by Ukrainian banks, overall the model has structural when 2008 appears in data that can be attributed to negative developments and crisis.

Export diversification is very essential for transition countries. External economy of Ukraine is an issue of high interest of economists because Ukraine takes one of the first places in the world regarding the rate of ration of foreign-trade to GNP. The reasons for diversification of Ukrainian trade are quite clear. Ukraine will be less sensitive to the shocks on the world markets of products in case of more diversified trade. So export diversification decreases the risks from the unstable demand of the trade partners. This paper uses the recent developments in the international trade theory that considers the fact that some firms export, some do not to investigate the pattern of export diversification. Using a gravity model the highly disaggregated trade data in the period from 2001 to 2007 was analyzed. It was found that intensive margin is the most important share of the trade growth. As for extensive margin we can conclude that geographical extensive margin is more important than product extensive for the growth of export. Signing free trade agreement increases the probability to diversify.

Iuliia Tarasova: “Exchange rate and trade: an analysis of the relationship for Ukraine”

The paper presents the estimation of the influence of exchange rate on the trade balance in Ukraine. A specification propose by Ross and Yellen (1989) and different modelling techniques were used, in particular, linear reparation analysis, simultaneous equation model and co-integration analysis. The results suggest that during the sample period 2002 (1) – 2008 (2) there were no significant relationship between exchange rate and trade balance in Ukraine. The paper also discusses the possible reasons for the results and policy applications.

The focus of the thesis is upon the concept of production capacity and the factors that determine it. The paper aims at formulation of the production capacity function for manufacturing that would include all relevant factors of production and its verification. In the first chapter a brief literature review is presented. It comprises the relevant studies from the fields of economics and production management, and a number of bordering papers. However, the problem raised is still under researched. In the second chapter the set of propositions is advanced. Those propositions are designed to capture the most essential features of manufacturing production. They are split into five blocks, each dealing with a major set of factors within the production. Those are considered to be process organization, labour, and workers’ professional skills, operating time, and reject rate of production. In the third chapter, the framework itself is introduced. Then it is verified analytically as to whether it satisfies each of the propositions from the set advanced. Upon verification, the framework appears to satisfy the entire set of propositions. However, some of them are satisfied only partially. Yet this drawback is minor since it involves relatively short intervals of the admitted regions of the variables.

The current research is devoted to investigation of the impact of institutional environment on the volumes of private investments in infrastructural sectors in low and middle income countries. Econometric models for limited dependent variables (Tobit, Heckit) and count variables (Poisson) were implemented for analysis. The obtained results support the theoretical predictions on positive impact of better institutions\’ quality on probability of observing private infrastructural projects, total number of such projects and total volume of private infrastructural investments. The practical value of the work is in emphasise of cruciality of proper institutional policy for attracting private investments in infrastructural sectors.

This paper tests the relationship between stock market variables (indices returns, individual stocks’ returns, spreads and trading volumes) and the weather in transition countries of Central and Eastern Europe and CIS. Weather is considered to be a proxy for the mood factors that affect decisions of investors and traders. It is hypothesized that they tend to be more optimistic about the market prospects if the weather is warm and sunny and are more pessimistic if it is rainy and cloudy. Hence, market players are more predisposed to buy stocks when the weather if fine and sell them when the weather is bad. While some significant effects are found, the overall impression the results give is that there is little evidence of a systematic effect of weather on stock markets in Eastern Europe, and hence, that it is unlikely one could make money on the stock market from accurate weather forecasts.

This paper tests the relationship between stock market variables (indices returns, individual stocks’ returns, spreads and trading volumes) and the weather in transition countries of Central and Eastern Europe and CIS. Weather is considered to be a proxy for the mood factors that affect decisions of investors and traders. It is hypothesized that they tend to be more optimistic about the market prospects if the weather is warm and sunny and are more pessimistic if it is rainy and cloudy. Hence, market players are more predisposed to buy stocks when the weather if fine and sell them when the weather is bad. While some significant effects are found, the overall impression the results give is that there is little evidence of a systematic effect of weather on stock markets in Eastern Europe, and hence, that it is unlikely one could make money on the stock market from accurate weather forecasts.

The purpose of this paper is to investigate the presence of herding behavior and describe it’s dynamics in the Ukrainian stock market. For the analysis I will adopt the definition of herding by Chang, Cheng and Khorana (2000) according to which herding is “the process through which participants of the market trade based on the collective actions of the market rather than their private expectations”. That is herding toward the market consensus in which market participants follow the market return and buy or sell without deep assessment of assets characteristics. Herding toward the market consensus leads that returns on assets would 4 be clustered around the market portfolio. Such behavior may arise due to fact that investors are sure that market portfolio captures all relevant information and do not spent resources in order to assess adequately the trends in market fundamentals. While this definition differs from that were proposed above (Nofsinger and Sias (1999), Banerjee (1992)), but this type of herding also lead to the biased assessment of individual securities due to the deviation of investors’ beliefs from the equilibrium values which are predicted by asset pricing theories.

Valeriya Zhydko: “The impact of capital flight on economic growth”

In this study I investigate the impact of capital flight on economic growth. This issue has raised a great discussion in both, theoretical and empirical literature. However, estimates of capital flight for all developing countries in the world have become available only recently. I use this newly available data set, consisting of 139 countries for the period of 2002-2006 and find that capital flight has a negative impact on GDP growth. However, its significance is ambiguous. The results are not robust to specifications, which account for region or year effects.